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Election Year Investing: Will a divided government affect the market?

Election Year Investing: Will a divided government affect the market?

September 14, 2016

Some believe that markets tend to perform better under a divided government: The situation that occurs when one political party controls the Presidency and the other party maintains a significant majority in at least one chamber of the Legislative body, namely the Senate or the House of Representatives.

The theories argue that divided power is the cornerstone of the checks and balances system. It keeps corruption at bay, tends to slow reactionary legislative action and creates an environment where markets are free to flourish without the reactive impacts of newly enacted policy.2 Others feel that a politically divided government is one of the major issues that hurt the overall investment climate.

Statistically speaking, with the exception of the unusual double-digit returns in the 1990s, since the year 1900 U.S. equity markets have actually performed better when the government was united.1

As we await the unfolding of events in November and beyond, only time will tell how our government will balance on both sides of the isle. All in all, it seems as if the issue of a divided government’s effects on markets continues to be debatable.

1 Kiplinger  2 Bloomberg

*The content presented is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.